Degree needed to understand insurance small print, consumer body claims

A third of all insurance policy documents are written in language that is only accessible to university students, according to new research by the consumer group Fairer Finance.

After calculating the reading age for over 280 banking and insurance documents using a range of readability formulas, Fairer Finance concluded that the average insurance document is only accessible to someone in the last year of sixth form college, while a number of documents were found only to be suitable for someone educated to postgraduate level.

According to the National Literacy Trust, 16% of the UK adult population has a reading age of 11 or less. However, Fairer Finance did not find a single insurance policy written in a language that could be understood by a first year secondary school student.

Banks fared only slightly better, with the average banking document having a reading grade equivalent to the final year of GCSEs, and one in eight meeting the first year high school standard.

James Daley, managing director of Fairer Finance, said: “You shouldn’t need to have a degree to get your head around the details of a savings account or insurance policy. But as things stand, most banking and insurance documents are a struggle for even the most educated people to read.

“By communicating in a language that many people simply can’t understand, banks and insurers are discriminating against large swathes of their customers.

“As well as being unfair, it’s also bad business. If customers don’t understand what they’re buying, they’re more likely to be disappointed. It’s in everyone’s interests that companies communicate clearly with their customers. Until companies start to communicate in plain language, there's little hope of rebuilding trust between banks, insurers and their customers.”

The Financial Conduct Authority's Smarter Communications discussion paper, published in the summer, challenged financial services companies to think of more innovative ways of communicating with their customers – citing examples as extreme as the use of comic strips, to help explain complicated concepts.

FCA rules already state that all customer-facing communication must be “clear, fair and not misleading”, but Fairer Finance believes every financial services company already fails this test and wants the FCA to go further and fine companies that do not simplify their documents.

It also claims that terms and conditions are often too long, having found some that are longer than a novel such as Animal Farm.

The Association of British Insurers said insurers continually reviewed their customer materials, as they wanted policyholders "to read policies and understand what they are covered for and what they need to be aware of". It encouraged consumers to speak to their insurers if anything was unclear.